Avoid This Parent Trap: Long-Term Care for Aging Parents

Retirement planning is no small task. As life spans increase, you may have to add caring for your aging parents to your own list of retirement concerns.

5 min read
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Key Takeaways

  • As average life spans continue to increase, many retirees may be ill-prepared for the financial burden of long-term care 
  • Potential funding sources include long-term care insurance and annuities  
  • Learn how regional cost differences can affect the price of care insurance

There’s a potential retirement crisis in the offing and it’s not necessarily your own. As you map out your plans for financial security in an uncertain future, you should also be thinking about caring for aging parents.

Why? Because people are living longer—and it’s surprising even them.

According to the Social Security Administration (SSA), men who reach 65 today can expect to live, on average, to age 84.3. Bump that even higher for women, who can expect to live until, on average, age 86.7. And, as the SSA reminds us, those are just the averages—one out of every four 65-year-olds today will live past age 90, and one out of 10 will reach 95 or older. Living longer can mean added health care and long-term care costs, including sometimes-pricey in-home services or perhaps nursing home costs, that may stretch an entire family’s savings.

In other words, there’s a growing need for income that is guaranteed to last a person’s entire life, as many people are living longer and are concerned about outliving their assets. While there are a number of alternatives regarding how to handle long-term care expenses, here are two:

  • Long-term care insurance. Such policies help pay some of the costs not covered by health insurance, Medicare or Medicaid, including nursing home costs, assisted living, or in-home care. These insurance policies require the payment of an annual premium, which might increase over time. Some families choose long-term care insurance for the female spouse, since, as shown above, women tend to outlive men and often require additional care and support.
  • Annuities. There are several types of annuity structures, but the general framework is this: You make a series of payments, or a lump-sum payment up front, and down the road, you receive a periodic distribution, generally monthly, for the rest of your life. 

Longer Lifespans: As Problems Go, Not a Bad One

Many Gen Xers and the Ys right behind them already know these longevity statistics and are factoring them into retirement planning. Younger Boomers, too. Their parents, however, didn’t necessarily count on living this long, and many of them are ill-prepared. According to a 2018 study by the National Bureau of Economic Research, a mere 10% of the elderly have long-term care insurance. Are your parents among them? 

They may be able to subsist on Social Security and/or a nice pension with some supplementary income through dividends or withdrawals from Individual Retirement Accounts (IRAs). But what happens when Alzheimer’s, mobility issues, or some other health curveball barrels in? What happens if the value of a home or an investment portfolio goes south just when those assets are needed most? That’s when the real financial pain begins. Caring for elderly parents can be very, very expensive. 

Location Matters

Let’s look at the hard, cold facts about long-term care: It can eat up all your assets in no time at all.

Like real estate, the prices depend on location, location, location. The costs for similar care can vary greatly from one region to another, according to research by Genworth, the largest seller of long-term care insurance. This can mean large differences in the regional cost of insurance.

In Chicago, the average cost of a home health aide will set you back $24 an hour, according to the 2018 Genworth Cost of Care Survey. Just one year of that and the total bill rings up quickly to about $37,000—and that’s for only six hours per visit, five days a week. Someone else has to stand in the rest of the time.

It’s a little cheaper in Richmond, VA, where the per-hour price is $20, or a shade above $31,000 a year.

If Pop were put in a nursing home in Chicago, the average per-day price tag is $241, or about $88,000 a year. In Richmond, it’s pricier per day in a nursing home, at $260, or about $95,000 over the same period.

Let’s take it to Seattle, where the per-hour cost for in-home care comes in at a whopping $31.95 an hour, or $50,000 a year. And if a nursing home is needed, the prices spiral to $304 daily, or $111,000 a year. 

Not all families can afford the prices in this small sample. Medicare doesn’t cover hospital or nursing home stays over 100 days, so don’t count on that. And Medicaid is available only if your assets are next to nothing.

No Surprises?

Keep in mind that the best family time may be spent asking some tough questions about multi-generational retirement planning, including meeting nursing home costs and other long-term care expenses. It’s never too early to have the long-term care talk.

After all, a birthday cake crowded with candles is a good thing; financial surprises in our golden years are not.

TD Ameritrade does not provide legal or tax advice. We suggest you consult with a qualified legal or tax-planning professional with regard to your personal circumstances.


Key Takeaways

  • As average life spans continue to increase, many retirees may be ill-prepared for the financial burden of long-term care 
  • Potential funding sources include long-term care insurance and annuities  
  • Learn how regional cost differences can affect the price of care insurance
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